Jobs and cash flow on the line as small businesses face up to the credit crunch

The latest business confidence survey carried out by financial specialist KPMG found that the number of firms intending to reduce staff numbers has almost doubled since the start of the year. The number planning to cut jobs has gone up from 29%, in the first quarter of 2008, to 53%. In addition, 52% are planning to stop recruiting new staff in order to cut costs. The FPB has also experienced a marked increase in calls from members specifically related to redundancies.

"Recent figures have shown a huge rise in the number of tribunal claims. As redundancy is a major factor fuelling tribunal claims, this is likely to continue given the figures from KPMG, which indicate the likelihood that a lot more people will be made redundant in the coming months," said the FPB's Senior Member Services Representative, Philip Moody. "Business-owners need to have expert employment advice to hand, and the FPB offers an all-in-one service including insurance against the cost of defending a claim, or of any award, of up to £75,000."

He added: "The FPB's annually-updated Employment Guide is just another of the tools provided to help members by guiding them through the complexities of employment law. A tribunal award can be enough to put a small firm out of business, but many are also experiencing increased pressure on their cash flow because of the downturn in business, and because more customers are reluctant to pay their bills on time."

According to KPMG, almost 60% of firms surveyed think they will continue to suffer for another one to two years. Close to 20% of UK businesses fear the downturn could linger until 2013.

In a further study, KPMG asked companies with revenues ranging from £250 million to more than £20 billion how the credit crunch was affecting their management of working capital. In response, 49% said they plan to negotiate longer supplier payment terms with smaller suppliers.

KPMG Advisory Director, Andrew Ashby, warned that this would make cash-flow problems even worse.

"Adopting the same old blinkered approach of squeezing your suppliers and delaying payments is a zero sum game where only a few winners will emerge," he said. "Companies need to be more focused on gaining improved visibility and control of cash, and to work smarter across the supply chain to create win-win opportunities that reduce the cash cycle for all participants."

The study, which compared the impact of the credit crunch in the US and UK, found that 75% of UK businesses are experiencing problems with late payment, compared to 23% in the US. In addition, 75% of UK businesses have reduced access to credit, compared to 14% in the US, while 71% of firms in the UK have seen the cost of credit rise, compared to 19% in the US.

According to the research, although 96.4% of businesses in the UK use some form of cash-flow forecasting, only 6.8% say it is ultimately accurate.